Stop and Think before You plan to Change Your Credit Scores!!!!!

Mortgage and Lending with Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 NMLS ID# 158606

Credit is one of THE MOST IMPORTANT ISSUES IN getting a loan today. 

Time and time again, I'm called by a client who says "I PAY MY BILLS ON TIME, BUT MY PEOPLE SAY MY CREDIT STINKS....

Maybe I'll just pay off my credit cards today.....

No, No, No, No Nooooooooooooo!!!!!!" 

Truthfully, there is more to a credit score than just making your payments on time or paying off your credit.  In fact paying off all your credit today could be a bad move.  Needless to say, I've broken this down so that the complexities of mortgage credit scoring can be understood by the consumer.  I reference this a lot when consulting clients.  With this information you can self-analyze your situation to make sure that you monitor your scores or raise your scores to where you want or need them.  In other words, this serves as a roadmap to building a good credit report.

 Here are all 5 factors in the order of importance:

 1)  Payment History has a 35% impact. Paying debt on time and in full has a positive impact, and late payments, judgments and charge-offs have a negative impact.

 2)  Outstanding Credit Balances have a 30% impact. Debt ratio of outstanding balance to available credit is important.  Keeping that below 50% is wise and below 30% even wiser. It is never a good idea to close an account; the debt ratio will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines. The increased interest incurred by moving a balance from a 0% card to a 23% card will be minimal relative to what the increased mortgage debt might be with a low credit score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower the debt ratio, provided they can do so without a hard credit inquiry. 

 3) Credit History has a 15% impact. The length of time a particular credit line has been opened is important. A seasoned borrower is stronger. 

 4)  Type of Credit has a 10% impact. A mix of auto loans, credit cards and mortgages is positive, rather than a concentration in credit cards only. 

 5)  Inquiries have a 10% impact. Hard inquiries for credit will negatively impact the score. Auto and mortgage inquiries receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage and will be treated as only 1 inquiry. The maximum number of inquiries that will reduce the score is 10. Any inquiries beyond that [11+] in a six -month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.

Make sense?  It does to me.  File this away in your back pocket.  Every time you want to save 10% on the flashing blue light special for signing up for a new may be paying a lot more than that with all of your other credit if your scores drop. Know your facts, call me if you want to talk further on how this may affect you.

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Re-Blogged 27 times:

Re-Blogged By Re-Blogged At
  1. Alan May 08/24/2010 04:45 AM
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  14. Bernadine Hunter, SFR, ACRE 08/25/2010 08:12 PM
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  16. Marsha Cash 08/26/2010 10:11 AM
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Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Lots of good, detailed, specific, actionable info here - thanks for sharing it.  We will be passing it on to our clients.


Aug 25, 2010 12:50 PM #35
Renee Thompson
Premier Sotheby's International Realty - Tampa, FL

This is really good information, and helpful for me as well. 

Aug 25, 2010 01:28 PM #36
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Keith......go get and installment loan or a secured credit card and let it brew!!!!!  You'll get there!

Everyone else.....thanks a ton!!!  Great to have good feedback

Aug 25, 2010 03:13 PM #37
Vince McEveety
Gilleran Griffin Realty - Sherman Oaks, CA

the bottom line is not even the experts are experts.. but at least we should make educated moves

thanks for the heads up

Aug 25, 2010 04:47 PM #38
Chris deLambert
Sanford, NC

Excellent work.  You've just been re-blogged.  I hope you don't mind.

I can't imagine a more concise set of instructions for people seeking to improve their standing.  Thanks.

Aug 25, 2010 05:05 PM #39
Jesus Sotelo Carrillo
Capitol Real Estate Group - Visalia, CA
Thanks for tips. I am working on my credit. These tips help a lot. Great info to share.
Aug 25, 2010 07:25 PM #40
Bernadine Hunter, SFR, ACRE
Keller Williams Greater Columbus Realty - Pickerington, OH
"Finding Solution to Your Real Estate Needs"

This is really great information in this changing credit environment. I'm reblogging.

Aug 25, 2010 08:10 PM #41
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Larry, it makes sense. Thanks for the information and the reminder.

Aug 26, 2010 02:42 AM #42
Marsha Cash
RE/MAX Advantage - Stockbridge, GA

Useful information to keep handy.  Thanks.

Aug 26, 2010 10:14 AM #43
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Good information, thanks.

Aug 26, 2010 10:35 AM #44
Lori Mode
Keller Williams Realty - Elk Grove, CA Homes for Sale - Elk Grove, CA
Real Estate Made Simple

Gary - great information for buyers!  So many lenders it seems don't take the time to explain these things to buyers and it can be very confusing for them.  I am reblogging it now for our Elk Grove area buyers!

Aug 27, 2010 03:10 AM #45
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

With all of the good information on credit scoring out there today, it is amazing that people still make the mistakes managing their credit.

Aug 27, 2010 01:12 PM #46
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes

We have someone right now who cannot buy because they paid off everything and have been using cash for the past 2 years -- a no no in the world of house buying.

Aug 28, 2010 02:47 PM #47
Jayson Holland - Denver, CO
Jay Holland

Where do you get this information? Can you cite sources? Is it verified? Who says payment history is 35% and outstanding balance is 30%?  Where is that information published? Thanks

Aug 29, 2010 08:06 AM #48
Fran Gatti
RE/MAX Integrity - Medford, OR
Managing Principal Broker - RE/MAX Integrity

Good stuff, Larry. I reblogged.

Aug 30, 2010 04:58 PM #49
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Larry this is a question I hear all the time and thanks for clarifying.

. Auto and mortgage inquiries receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage

Sep 08, 2010 05:34 PM #50
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Jayson....I recieved this information from the repositories directly. 

Sep 09, 2010 05:56 AM #51
Derek Wood
Marblehead, MA

Great info Larry. Thanks for Sharing!

Sep 14, 2010 01:45 PM #52
Laura S. Baker
First Weber Inc - Lake Mills, WI
Realtor (920) 728-4118, First Weber Inc

54 comments so far!  I'm not surprised!  This is good information!  Is there some list out there any where that lists the best credit card companies to deal with "during these tough economic times" and also the ones who have ,,,,,,, ........ well not been so good to work with?

Sep 16, 2010 12:32 PM #53
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Larry:  Another great post... very informative... and what a great hand-out this would make for both buyers, and Realtors as well.  Very well explained, and equally well presented.

Sep 16, 2010 08:30 PM #54
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Larry Bettag

Vice-President of National Production
What to know how to buy if you're a bit credit challenged?
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